Volatility driving cattle markets

With Texas expected to add 550,000 cows, 2017 production forecasts are on the increase as is the case for all meats. Consumer beef demand continues to be strong for beef in the food service, restaurant and quick service sectors.

The recent volatility in the cattle market results from large supplies of beef and speculative investment in agricultural commodities, so cattle producers should brace for continued swings in prices as beef cycles through the supply chain.

That’s a message Southwest cattlemen heard recently at the Texas and Southwestern Cattle Raisers Association convention in San Antonio.

“Obviously, we’ve got a lot of meat to work through,” said Dr. Joe Paschal, Texas A&M AgriLife Extension Service livestock specialist from Corpus Christi. “Some economists have said it’s been a meat tsunami. I think we will get through that. Cows in good condition are moving up to the 70 cent mark in my part of the country, and bulls that are not completely worn out because of the lean beef value, are moving a little bit north of 90 cents.

“Some producers are looking at replacing some of the cattle they sold during the dry years or when cows were really high, or just rebuilding their cow herds.”

Randy Blach, CattleFax cattle marketing economist in Colorado, confirmed both the market volatility and large supplies of beef during his market outlook presentation.

“We saw prices break 35 percent (in the fall) and now we are just coming off a 35 percent rally,” Blach said.

He adds that the recent change in domestic protein supply produced has been the most in his 35 years. That’s due in part to export markets and working through large supplies of beef as a result of cow herd expansion. Blach said a recent trade of fed cattle at $131.62 marked a 35 percent increase from the lows set in October. He said the cow herd is still growing with more than a 1 million cows added to the 2017 inventory.

“We’re looking at 600,000 to 800,000 more cows by Jan. 1, 2018,” he said.

With Texas expected to add 550,000 cows, 2017 production forecasts are on the increase as is the case for all meats. Consumer beef demand continues to be strong for beef in the food service, restaurant and quick service sectors.

Overall, Blach said weather forecasts are favorable for good grain production and should keep corn prices around $4 a bushel. That sets the stage for moderate cattle prices going forward for the rest of 2017.

So far, spring rainfall has been plentiful in South Central Texas and South Texas regions.

“We’ve had adequate rainfall, enough rain to get grass growing,” Paschal said. “Most of the cows are fat as I drive up the road from the Valley to Central Texas, across to Del Rio and over to Houston.”

EFFICIENCY ISSUES

Dr. Ron Gill, AgriLife Extension livestock specialist and associate department head for animal science at Texas A&M University, said producers are having to identify efficiencies in their operations to increase profit margins.

“When you look at efficiencies, you’ve got to focus on major cost centers and that’s depreciation, feed and labor,” Gill said. “You can only take so much labor out of an operation and it still be functional. There is that spot where you have to decide to cut down on permanent labor and go to contract labor, how you can best manage the things that have to be done on a ranch.”

Gill said feed expense also plays a key role and “how you are managing your natural resources.”

“Are you pushing your production environment where you have to buy supplemental feed to cover those gaps? Or can you back off a little bit and, depending on how much you are pushing your resources, not have to buy supplemental forage?”

Gill said with regards to depreciation, machinery costs are a big expense.

“It can be equipment, and it can be breeding stock as well. Can we control those costs, can we look for ways to buy bulls at a cheaper price, or go to artificial insemination?” he asked. “It all comes down to buying stuff that has a positive return on investment. I think that is the key message. There is a lot of stuff we can buy, and a lot of it is fun to have, but we have to buy stuff that is going to return on that investment. It’s the same things we’ve been fighting for years in our industry. We’ve had ups and downs, we just have to figure out how to fit our production systems into today’s current economic situation.”

Other topics discussed included marketing cattle and health issues.

“There are many different factors cattle producers are facing today that affect their ultimate economic viability,” said Dr. Cliff Lamb, department head for animal science at Texas A&M. “The fever tick, drought — all affect productivity. We must work closely together as a unit, from a research, Extension and animal science faculty standpoint, to figure out fast ways to counteract issues such as drought and fever tick and resolve them as quickly as possible.”